Sticky UK inflation fuels BoE hawks before Thu meeting! | MarketTalk: What’s up today? | Swissquote

Show notes

Risk takers are not out dancing on the Wall Street this week before the Federal Reserve (Fed) President Powell’s semiannual congressional testimony scheduled for today and tomorrow. Equities are down, oil is down, sovereign bonds are up.
A strong housing market and tight jobs market will encourage Fed to hike more, and encourage other central banks to do more, as well. But not everyone is as lucky as Powell, because in Britain, the skyrocketing mortgage rates are turning into a serious headache that no one can solve for now. The 2-year gilt yield slid below 5% yesterday, as a result of a broad-based flight to safer sovereign bonds, but the relief will likely remain short-lived and the outlook for Gilt market will likely remain negative with further, and significant rate hikes seen on the BoE’s horizon. Released this morning, the British inflation was expected to ease from 8.7% to 8.4% but did not ease… while core inflation unexpectedly jumped past the 7% mark again. These numbers warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households, without a guarantee of easing inflation.
The US dollar index traded higher for the 3rd session and is now testing the 50-DMA to the upside, while gold pushed below the 100-DMA as rising US yields and stronger dollar weigh on appetite for non-interest-bearing gold.
Yet any hawkishness from Powell’s testimony will likely be tempered by counter-expectation that the Fed may be going too fast too far, and could stop hiking before materializing the two rate hikes they revealed last week in their dot plot. Still, Jerome Powell will confidently remain hawkish, and that could lead to some further downside correction in US big stocks which are now in overbought market.
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